The Nifty on Monday got support at 4,400 levels and closed at 4,438 following profit-booking in Mahindra & Mahindra (M&M), Maruti Suzuki, Hindustan Unilever (HUL) and ITC on monsoon concerns.
Technical analysts are expecting corrections to continue till 4,250, but the futures and options (F&O) data suggest that the index has a strong support at around 4,350-4,400. Traders were seen unwinding their long positions in 4,500-4,700 puts as they expected the index to revisit 4,700 levels in the near future. The 4,400 put added an open interest (OI) of 393,600, suggesting support around 4,400 levels.
Nifty August futures, which ended the session with a discount of 49 points to the spot, closed with a modest 12-point discount at 4,425. This means, bears might have covered short positions when the futures fell below 4,400 levels and then settled intraday short positions at 4,425 during the close-out session. The 4,500-4,700 calls together added an OI of 1.12 million shares and the Bloomberg data suggested that options traders bought these calls when the Nifty was trading around 4,400-4,500 levels as they expected a fresh rally in the market in the near future.
Siddhartha Bhamre, derivative and equity analyst at Angel Broking, expects the index to get a strong support at around 4,350-4,400 levels with an upside target of 4,700. The recent correction is largely due to unwinding of long positions rather than short build-up, and hence the market is likely to turn around from this level. So far, the local market was moving ahead of world markets. But it has now corrected by around 7 per cent from its recent peak and, henceforth, it is likely to follow global cues, says Bhamre.